What is Carbon Leakage?

July 27, 2016

Carbon leakage is an occurrence in climate change policy where carbon emissions from one country are increased because of reductions in another. This is usually due to companies moving from the reducing country to one that has less strict climate policies. This could be because those leaving companies may find it too costly to reduce emissions and therefore find it easier to move to countries with less stringent climate change policies.

National governments need to be careful in setting their policies. On the one hand, if their climate change policies are too strict, they may inadvertently cause carbon leakage. At the same time, if these policies are too lax, clean tech companies may leave due to the less ambitious policies and the less demand for low-carbon products and solutions that follows.